Volkswagen fraudulently secured €400 million in loans from the European Investment Bank to develop the engine at the heart of the Dieselgate scandal, according to officials at the EU anti-fraud watchdog OLAF.

The results of the fraud probe are another blow to the reputation of the German car industry, following the Dieselgate revelations in 2015 and reports in the last few weeks that the big five players in the sector colluded secretly to thwart competition. Transport Minister Alexander Dobrindt told the car companies Sunday they had “a damned responsibility to rebuild trust and fix mistakes.”

The OLAF investigation, concluded in the past few days, delved back into Dieselgate, when VW fitted engines with so-called defeat devices, or software that enabled diesel cars to perform far better in emissions tests in a laboratory than in real driving conditions. VW admitted that 11 million cars had installed the illegal software, enabling them to spew out more poisonous nitrogen oxides (NOx) than tests suggested they would.

OLAF officials said they opened a case in November 2015 to look into financing granted to VW in 2009 by the EIB, the EU mega-bank largely dedicated to infrastructure and development projects. The loan was supposed to help the world’s biggest carmaker develop an engine that would comply with increasingly stringent emissions rules in the EU and the U.S.

The EU investigators concluded, however, that VW secured the loan by “fraud” and “deception.”

OLAF’s chief complaint was that the money was channeled toward VW’s EA 189 diesel engine, although senior company employees knew that this model would only meet its emissions targets by using a defeat device. The EU investigators argued that VW failed to disclose this to the lender, and added that the EIB would not have granted the loan if it been fully briefed, according to officials familiar with the probe.

The EU investigators did not find, however, that EIB money had been used directly for creating defeat devices — which had been a subject of press speculation in the past 18 months.

Recommendation to prosecutors

OLAF itself cannot take judicial action. Instead, it has sent recommendations to public prosecutors in Braunschweig, who are leading criminal inquiries into VW, asking them to take its findings into consideration.

A spokesperson for the EU watchdog added it had also told the EIB to take “active steps” in implementing its anti-fraud policy.

It did not, however, recommend that any money should be clawed back from VW, because the carmaker had already paid back the loan in 2014, the spokesperson added.

Braunschweig prosecutors’ office did not respond to requests for comment. The EIB said it was weighing up OLAF’s conclusions “to determine more precise appropriate action.”

VW did not respond to requests for comment.

The EU watchdog’s case centered on two senior employees, Richard Dorenkamp and Thorsten Duersterdiek, according to the officials briefed on the case.

The investigation found that the two men were aware that shortcomings of the EA 189 engine meant that they would need to cheat to meet emissions targets. This information was withheld from the EIB in applying for the loan, and for the whole duration of the financing.

The VW Autostadt in Wolfsburg, Germany | Danie Reinhardt/EPA

Before granting the loan, the EIB specifically requested information from VW about the environmental impact of the project to be funded, and received an email stating how the projects “were components of VW aspiration to become the most innovative mass car manufacturers with an emphasis on further reduction of emissions and fuel consumption.”

In February 2011, once the EIB-funded project was completed, VW even sent material to the lender boasting of how successful it had been in slashing emissions.

“The main result, to produce fuel efficient and reliable vehicles as well as complying with new EU legislation to reduce car emissions, has been fulfilled. Therefore, the project was consistent with the Bank’s policy on climate change.

“The project has been implemented according to the technical description. The results are very satisfactory with carbon dioxide emissions reduction of up to 20 percent, NOx emissions reductions of up to 30 percent and particle emissions reduction superior to 90 percent for the diesel engines,” VW was quoted as saying in the EIB project completion report of December 2011.

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Frank Smith

So Germany is once again in the news about its cars!
Having been found out for using software to cheat emissions now its manufacturers have now been found out for defrauding the EIB!
What else has Germany, its Companies and its people been up to?
It is no wonder Germany has the best economy in Europe, it cheats other nations out of fair competition by fraud and deception!
Frau Merkel will no doubt say nothing as usual but then Germans don’t when they are in the wrong!

Posted on 7/31/17 | 10:07 PM CEST

Deutsche Qualität

German are not perfect and there is nothing wrong with that, but sometimes some of them like to teach lessons to other people/contries, they like to make you feel inferior… Maybe it’s time to be more humble.

Posted on 7/31/17 | 10:11 PM CEST

alan

More grist for the Trump mill .. and another 10bn or so on the fines & penalties etc

Posted on 7/31/17 | 10:26 PM CEST

alan

…. and “systemic threat” to the rule of law perhaps

Posted on 7/31/17 | 10:29 PM CEST

ab

@alan
I’m puzzled that EU Commission has not started control of rule of law in Germany yet ?!?
And when there will be debate about it in EU Parliament ?

As German government seems incapable to ensure basic legal EU standards (20+ years car companies cartel, dieselgate, foreigners without title to stay in Germany freely roaming around the country occasionally attacking German citizens, mass looting and destruction of parts of the city without proper police reaction like in Hamburg) or even worse – may be is complicit in those criminal acts (for example how it was possible that German authorities were unaware about car cartel for 20+ years ?!? Really ?).

Posted on 7/31/17 | 11:20 PM CEST

moderateGuy

@ab, surely you know EU is a German colonial project.

Posted on 8/1/17 | 12:21 AM CEST

peter

Disco and the hits just keep on coming!

EU may as well wack on post brexit tariffs who wants a German motor now? My next motor will be a Jag!

Posted on 8/1/17 | 12:59 AM CEST

Veritas-Semper

Oh, come on now! These things can’t happen in the “exemplary rule of law land, Deutschland”, can they?

Or, maybe what the EuroCommissar clique wants to convey is that “rue of law” is what the EU lives by for and “rule of law” is what they are against?

Last time I heard, Timmermans was looking to find a law in Poland to make his move against with the “rule of law” clause of his own making.

Perhaps VW should send a team to Poland to teach the ruling majority how to properly apply the “rue of law” to stave of Frans? They are so good at it having gone under the radar for years…

This is getting really confusing now…

Posted on 8/1/17 | 1:38 AM CEST

alan

@ab
I’m puzzled that EU Commission has not started control of rule of law in Germany yet ?!?
And when there will be debate about it in EU Parliament ?

Given the preponderance of Germans in senior positions in the EU the Commission is paralysed – Selmayr wouldn’t approve for one!

As for the EU Parliament the poor dears are on holiday until September, no point trying to contact them until then

Posted on 8/1/17 | 7:44 AM CEST

alan

It occurs to me that if an EIB loan was obtained fraudulently what exactly is the status of any corprate bonds issued by VW ? Were any of them obtained on the basis of a fraudulent prospective? Something for the relevant stock market/ financial regulators to consider. Of course if any of those bonds are held by US investors the risks of legal actions multipy dramatically

Also if the ECB has accepted VW bonds as part of its QE programme there is probably a bit of the squeaky trousers syndrome spreading slowly through the organisation (but best not to try to visualise that!)

Posted on 8/1/17 | 8:09 AM CEST

Milton38

What an absolute humbug.
Did you expect VW to say, ‘oh no, we won’t ask for the money on that particular engine because we cheated’.
Another point that I feel needs clarification from investigative journalism. It is known that the cancer risk posed by diesel soot is higher than all other air toxic elements combined.
Did the engine really cut down this soot component by 90%? Is this in agreement or higher than required? Is it possible that this added level of reduction makes the attainment of the other levels (NOx etc) difficult or impossible?

Posted on 8/1/17 | 8:51 AM CEST

Colin M

@Milton38

“It is known that the cancer risk posed by diesel soot is higher than all other air toxic elements combined.”

One has to wonder what lobbying went on to get the EU to produce the EC 1998 “Acea agreement with all European car makers” and the massive bye in diesel emissions requirements relative to petrol (especially when compared to the US requirements). The health risks of diesel particulates were well known from the 1970s (I was in atmospheric physics research and had a colleague, a specialist in aerosol, who would practically pick you up by the shirt-front if you mentioned buying a diesel car). Certain EU car manufacturers had clearly invested a lot in diesel passenger vehicle development and it’s interesting that this paid off so handsomely for them especially in giving them a considerable advantage over, for example, the Japanese manufacturers who had done much less in that direction. Luck? – I think not.

Posted on 8/1/17 | 1:54 PM CEST

Faroe

Isn’t the real point – why is the EIB lending VW 400m?

They didn’t need it (I did check VW’s accounts for the relevant period) – so I can only assume they could invest it and receive a higher rate on interest than what they were paying back. I can’t blame VW for that, but makes me wonder about the EIB..

Posted on 8/2/17 | 12:24 AM CEST

tuciu

Why cannot OLAF take judicial action? Given the missing oversight of the cartel practices of german car makers I believe there are grounds to believe that german prosecutors are more lenient with VW than the European tribunals would be.